U.S. and EU slowdown to hurt 1/5th of MSMEs: CRISIL Report
- June 27, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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U.S. and EU slowdown to hurt 1/5th of MSMEs: CRISIL Report
Subject : Economy
Section: National Income
Key points:
- CRISIL analysis shows that around 20% of small businesses across sectors are to be adversely affected by economic slowdown in advanced countries, particularly the U.S. and Eurozone.
- The most immediate impact is in the form of increased working capital needs.
- The debt requirement of MSMEs is estimated at over ₹100 lakh crore, of which 70% is working capital only and only a fourth of this is sourced formally.
- Working capital requirement is directly linked to the receivable turnover, i.e. speed with which the cycle of order and final payment is completed. The shorter the duration of the receivable cycle, the less is the working capital needed.
- The study found adverse effects on working capital requirement for three sectors–dyes and pigment, gems and jewellery, and construction.
- Dyes and pigments, pesticides and pharmaceuticals: The rise in working capital days is for three reasons–inventory pile-up following dumping by Chinese producers; the recent earthquake in Turkey, and a slowdown in the US.
- Diamond exports: The substantial decline in demand from the US–the largest export market–is having a major impact. That, in turn, is having a bearing on receivable days, leading to an increase in working capital days from 140 before the pandemic to over 200 now.
- Construction & roads sector: Reduced budgeted capex of last fiscal along with high commodity prices has added to the challenges in meeting working capital demand. This has led to an increase of over 100 days in their working capital cycle this fiscal compared to the pre-pandemic levels.
| Slowdown | Recession |
| A slowdown, on the other hand, means that the pace of the GDP growth has decreased. Countries like India and China are currently faced with an economic slowdown. It means the production and earnings of these economies are not growing at the same pace as, say, last yea | The GDP is the total value of all the goods and services produced or created in a country in a year. When this value falls, the country’s economy is said to be in recession. It means that the country is producing and earning less than what it did.
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